The Basics of Budgeting: Let's Get Started

I spent years writing about finance as a journalist, then as a corporate copywriter. Still, I was always pretty bad with my own money. I would attempt a budget every few years, but then I'd have a busy couple of weeks or a job change, and my whole budget would fall apart.

Budgeting is like dieting or developing a workout routine, not just because it can be challenging to start and then keep going but also because the mistake that really gets most people is a failure to account for who they really are. We set lofty goals and create strict regimens that ultimately feel like punishment. And why wouldn't we? After all, our failure to manage our finances or bodies is clearly some deep, personal character flaw, right?

But maybe net worth shouldn't predict our self-worth.

Around the time I was able to create a budget that worked for me was the same point that I, like a growing number of adults past mid-life, figured out that I had ADHD. Suddenly, a lot of how standard motivation systems and reward programs failed for me made a lot of sense. Now, this post is not about ADHD, so I'll save that squirrel for another time.

The point I want you to take away, I believe that there is a budget system that will work for you. It may not be the one that worked for me or any number of finance gurus (not calling myself a finance guru, just to be clear). The system that will work for you will likely be as unique as you are. Simply put, if you adopt the wrong user experience, it won't matter how good your tracker is or whether you use every "best budgeting app" you can get your hands on.

So, here is the first step to identifying a budgeting approach with the functionality you need:

Don't Beat Yourself Up

Seriously. There is an excellent chance that the real reason you are not as good with your money as you want to be is a matter of method. Discipline and follow-through on your part may have nothing to do with your budgeting failures in the past. Just like with exercise, the point here is not to become a superhero but to get better. If you improve, you have a win.

Then you take that win, no matter how small, and use it as the foundation for your next win. It does not matter how much you improve each day or if you lose ground some of those days, so long as you keep a steady, upward trajectory.

Again, the point is not to reach an impossible goal; impossible goals will just add stress and make you want to quit. Just as not everyone at the gym or running circuits around the block is on their way to the Olympics, using intelligent money management techniques is not about becoming a millionaire. It is simply about getting better.

So, more than enough of the pep talk; let's get to it:

The Real Benefits of Budgeting

The basic idea of a budget is that it will help you to not find yourself biting your nails at the end of the month and hoping that a deposit lands in your checking account in time to avoid an overdraft. But there can be a lot more to it.

A budget can help you save money, prepare for unforeseen expenses, and plan for the future. Budgeting can also help you to stay on top of debt payments and reduce the stress associated with financial decisions. By creating a budget, you can identify areas where you can save money and reduce spending, which can actually be a lot of fun. It feels a bit like finding a $20 bill in the pocket of a coat you haven't worn all year.

Most of all, budgeting can help you regain financial freedom and positively shape your future. Instead of just keeping up with debt, you can pay it down and improve your credit score. As you are likely aware, your credit score is critical for determining the interest rates you pay and helping you with future purchases such as a car or home.

All in all, budgeting is about putting yourself in the driver's seat of your own financial future.

Expense Tracking — and Income

Start by identifying your income sources and expenses, including monthly bills such as rent, mortgage, car payments, student loans, insurance payments, and other personal expenses.

Avoid the temptation to lump too many things into a single category. Don't make a category for "personal expenses" that includes gas, groceries, and going out to eat. Be as specific as possible, and you will realize two benefits: 1) You will be able to see how you really spend your money, and 2) you won't overspend on "wants" with money that should be going toward "needs."

Once you have those spending categories, start recording every dollar you spend. You can use whatever budgeting tools work for you, whether an app, a notebook, or a trained lemur that will leap out and bite you every time you reach into your wallet — wait, no, forget that last one.

In the old days, we wrote down what we spent in the backs of our checkbooks (shakes cane menacingly). For some people, sitting down at their desktop computer at the end of the week and looking at charges in their bank account works. For me, I developed a Google Sheets spreadsheet so I could quickly enter items on my phone. I would literally pull out of the drive-thru — and out of the way — and immediately stop to check my receipt and record the $5.36 I spent on a hamburger — though these days, I suppose that would just about cover a small fry.

The point is to figure out a system that will work consistently for you. Another trick that might work is taking out a set amount of cash for "wants," such as fast food or drive-thru coffee, each pay period. Then, you don't have to worry about a budget line for those things because you are only paying for them in cash. Once you run out, you have to wait until the next pay period for a mocha-frappe-cina-froth. However, I am getting a bit ahead of myself.

After a couple of weeks or months of tracking every dollar you spend, your next step is to create financial goals for the next one-to-two months. Keeping your financial planning narrowly focused throughout the initial few months or even the first year of budgeting is a good idea, so try not to overreach.

Then, once you have your financial goals, you will be ready to create a realistic and achievable budget. Consider setting initial financial goals that are fairly broad, such as saving, investing more personal capital, reducing debt, or having more savings available in case of an emergency. Your goal at this stage may just be to pay your credit card bills on time to avoid interest.

Small goals are nothing to be ashamed of.

If that last sentence doesn't make sense to you, then here's a secret no one bothered to teach you in school: the foundation of anything worth having is repeatable habits, and repeatable spending habits are no exception.

We tend to lose sight of the idea that educational tools are not there to make you fit in a box or fill your head with facts. Useful educational tools are about helping you to turn your own brain into a tool that will serve you well beyond the scope of that initial academic structure. School should not be about passing childhood tests but about developing a brain that can adapt to life's tests. Similarly, the point of starting a budget is not to have a perfect roadmap for the rest of your financial life. The point is to learn to be able to make new maps at each stage of your life.

So, that brings us to...

Creating a Budget That Works for You

Now we come to the idea of self-punishment. Many people too often treat a budget like being put on some kind of austerity plan by the World Bank. You are making a budget to help yourself, not to punish yourself. If the budget you make leaves you miserable, you will never stick with it. You need to build in rewards.

Now, what those rewards look like will be different for everyone. It might be letting yourself have that drive-thru coffee on Monday before work. It might be — as it was for me — gamification of the actual spending process.

A lot of spending apps are built around the gamification of budgeting. In fact, some financial institutions now offer built-in features for checking accounts that give immediate positive feedback, such as showing the bump to your credit score from paying a bill on time.

Of course, those apps did not work for me, so I created my own gamification based on a reasonably extensive knowledge of Google Sheets. I was able to write spreadsheet formulas that provided immediate feedback on how a single transaction affected my current finances and my finances a year or more out.

Unfortunately, that also required writing formulas longer than this paragraph, so it's not for everyone. Still, if folks are interested, I will see if I can simplify and generalize some of the functionality and put something out there as a freebie that may not be entirely as automated as an app, but still more automated than a budgeting journal.

Back to the subject. When you are figuring out the best way to track your spending, throw some spaghetti at the wall and see what sticks. This is an excellent time to try out different methods such as budgeting apps or even just keeping a small notebook with your wallet. That way, when you reach the stage of making and following a budget, you will already have a tool you know you will use reliably and consistently.

Avoiding Common Budgeting Mistakes

In one way or another, I have already covered most of these above, but here is the TL;DR version (the summary):

1. Failing to accurately estimate your cash flow in your budgeting process. You can avoid this by having as many different categories for spending as you feel comfortable with and ensuring that you record every dollar you spend.

2. Not setting realistic goals for saving or balancing priorities. Can you eat for a month for $200? Maybe. Do you want to do that just to have more money for coffee each day or keep your Netflix subscription? You know what? I'm not judging. You do you, and enjoy your bad ramen self.

3. Avoiding budgeting for unexpected expenses such as a car breaking down or an appliance failing. Nothing will destroy a budget faster than an emergency. Even if you don't have a savings account, make a line in your budget to which you alot some money from each paycheck, then roll that sum over to the next pay period. Even though the money is still in your checking account, by subtracting it from your available funds, you are essentially placing it into a virtual account and eliminating the temptation to spend it.

4. Finally, not prioritizing needs over wants or failing to recognize the difference. You should develop a spending plan focused on essential items and avoid frivolous spending. Hopefully, the logic behind that is self-explanatory.

Educational Resources

First off, and to be upfront, the following recommendations have affiliate links. As you can guess, I could have recommended just about any book in the world and included an affiliate link, so you can at least rest assured that the specific books I chose are not motivated by money.

That said, none of these books are some hidden gem I alone have discovered. These are quality works by respected authors that come highly recommended from many camps. In addition, the pricing is not too bad on any of these. In fact, all but one of them have a free version on Kindle Unlimited, and even that one is just $2.99 on the Kindle Store.

In addition, just to throw a self-plug into the mix, feel free to follow me here on Vocal, as I will follow up with additional tips and more specific advice. If people express interest, I may do a walkthrough on creating my "magic" Google Sheets document that worked better for me than a budgeting app. In addition, I plan to also do a full review of some of the best budgeting apps I have tried. So, if any of this has been helpful to you, I hope you come back.

As an Amazon Associate, I earn from qualifying purchases.

How to Manage Your Money When You Don't Have Any

Aside from having a title that honestly warms my heart, Erik Wecks' "How to Manage Your Money When You Don't Have Any" is an excellent resource for anyone looking to create a budget. Erik covers the basics of budgeting, from understanding your income and expenses to setting financial goals, as well as tips on sticking to your budget and avoiding common mistakes. The book also includes advice on how to save money, invest your personal capital wisely, and pay off debt.

How To Stop Living Paycheck To Paycheck

In "How to Stop Living Paycheck to Paycheck," Avery Breyer provides an excellent resource for the overwhelming number of Americans trying to manage their finances in increasingly difficult times. Paycheck-to-paycheck living is a situation that now applies to over 60% of Americans, and even many who make six figures still end each month no financially better off than they began it.

For anyone struggling to live within their means, Breyer provides step-by-step instructions on creating and maintaining a budget and strategies for reducing spending, eliminating debt, and building savings. In addition to providing practical advice, the book includes helpful software that can help you track your progress over time.

Financial Freedom: A Proven Path to All the Money You Will Ever Need

Grant Sabatier's book "Financial Freedom: A Proven Path to All the Money You Will Ever Need" is a comprehensive guide to managing your money and personal finance. Financial Freedom advises individuals to take control of their money by prioritizing their expenses and making smart financial choices, in addition to providing valuable financial guidance.

Creating a budget, establishing financial objectives, and achieving financial freedom is made simple with his step-by-step instruction. Sabatier explains how to monitor expenditures, prepare a budget, save money, pay off debts, and invest wisely. The book also features the stories of several people who have attained financial success by budgeting and planning.

Your Money or Your Life

"Your Money or Your Life" by Vicki Robin is a comprehensive guide to creating and maintaining a budget. The book covers understanding your finances, setting financial goals, tracking expenses, and investing. It provides advice on how to identify areas of potential savings, how to set realistic goals, and how to create a budget that works for you.

In addition to providing practical tips for managing your finances, the book emphasizes the importance of tracking spending and making deliberate choices about spending or saving your money.

The Everything Budgeting Book

For those new to budgeting, Tere Stouffer's "The Everything Budgeting Book" is an excellent place to start. It deals with various issues, including personal capital management, goal setting, and monitoring expenditures. The book includes helpful tips for sticking to a budget and step-by-step instructions for setting one up.

It also teaches how to prepare for unanticipated bills and save money in your budget. The Everything Budgeting Book has everything you need to succeed, whether you're new to budgeting or want to improve your existing skills.

Frequently Asked Questions

What budgeting tools or apps can help me with the process?

I will not thoroughly review all the mobile device apps in this post, as it is already on the long side, and I plan to make a full post just about budgeting apps anyway. However, for those itching to head to the app store and pick out a personal finance app, I will give a nod to Mint — an Intuit product — and YNAB (You Need A Budget). These are two of the most popular budgeting apps I am currently aware of.

Their most significant difference is in pricing: both have free versions to try, but YNAB requires you to pay for a subscription after the free trial period. On the other hand, some may find YNAB more functional than Mint, which only allows budgeting for the current month. In addition, the Mint free version does not offer as many features as paying for the premium version, so you may wish to upgrade after the free trial with both apps regardless.

Both mobile apps permit syncing to bank accounts and credit card accounts to track spending and account balances (which may be a downside for some who dislike connecting their financial accounts and data to outside services). Both also allow you to monitor income and expenses, set savings goals, create budgets, plan future finances, receive alerts and track progress toward financial goals.

And, of course, both have pretty high ratings in general. Once again, though, remember that the best tool is the one that works with your brain and your personal finance goals. Never underestimate the power of a small notebook for getting started budgeting. In addition, while Mint provides bill reminders, YNAB does not.

The most significant advantage of these apps over manually tracking your budget, in my opinion, is automation. Taking a lot of the tracking and reconciling out of your hands makes it much simpler to keep up with a budget. So, while browsing the app store, maybe don't get too hung up over whether you are going with the best free budgeting app or something like YNAB with a subscription fee. Instead, just download any reputable app that will let you get started. You can always go back to the app store and download something else if it doesn't work.

Are there any tips for sticking to a budget?

First and foremost — and I can't emphasize this enough — you must set realistic goals and be careful about your progress. If you are confident enough in your budget that you won't risk overdrafts, you can even automate bill payments to stay caught up and not incur accidental late fees.

You might also consider using desktop software or mobile apps to help manage your finances better. An app or software that syncs with your bank account greatly simplifies tracking your financial progress in the long term.

In addition, always account for emergency expenses in your budget and then roll over any unused emergency funds from the previous period into the next one to ensure a single emergency does not completely derail your budgeting efforts. (Bonus tip, as you get better with budgeting, consider doing something similar for special events such as birthdays or holidays).

Finally, and above all else, remember the line from all those corny motivational posters about getting back up when you fall. It does not matter how many times you fall or stumble, so long as that number is never higher than the number of times you pick yourself up and keep going.

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